I’m starting a micro venture capital business & I need help

QUESTION:

I need help creating the business model for a venture capital firm that caters to small and micro-businesses. Also, I would like to know what critical factors I need to assess in running this type of business.

Critical factors to consider when starting this type of entity are the type of entity, where you will receive capitalization, and your target market.

For a small investment or micro-loan business you need look no further then the SBA for capitalization assistance. Specifically their prospective lender section located at http://www.sba.gov/financialassistance/prospect…. There are restrictions. Most of the approved entity types are non-profit organizations; however, don’t be discouraged if this is not your path. Other programs do exist through the US Treasury department, and funding can be found at investment firms such as Goldman Sacks (http://www2.goldmansachs.com/our-firm/press/pre… ) assisting for-profit and non-profit companies alike.

Your target market is important. Recent successes include increasing access to capital for minorities, offering alternatives to payday high interest rate lending, and small business equity investments which are creating jobs in local economies. Choose your path and execute.

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Comments & Advice:

Q1: The 2% – 5% management fee of the size of fund is that a monthly fee or 1-time?

Q2: The ‘Upside/Profit’ of 20% is that on all annual ROI for whatever investments the fund is managing?

For Q3 just using fictitious figures to make it easier to understand.

Q3: If we raise $100K from 10 investors and have a total of $1M – if we retain 20% of all annual profit does that mean if we have $1M in profit in year1 that we would receive $200K and the other 10 funders would receive 80%/$800K between them $80K each)?

Thank you in advance for whatever direction in the form of an answer you can provide.

Critical factors to consider when starting this type of entity are, the type of entity, where you will receive capitalization, and your target market.

For a small investment or micro loan business you need look no further then the SBA for capitalization assistance. Specifically their prospective lender section located at http://www.sba.gov/financialassistance/prospect…. There are restrictions, most of the approved entity types are non-profit organizations; however, don't be discouraged if this is not your path, other programs do exist through the US Treasury department, and funding can be found at investment firms such as Goldman Sacks (http://www2.goldmansachs.com/our-firm/press/pre… ) assisting for-profit and non-profit companies alike.

Your target market is important, recent successes include increasing access to capital for minorities, offering alternatives to payday high interest rate lending, and small business equity investments which are creating jobs in local economies. Choose your path and execute.

Even a small venture capital business requires significant equity — usually $5 million and up. In order to raise the necessary funds, you need to have an experienced team. If you haven't worked in investment banking or as a VC, it's unlikely you'll be able to raise the capital necessary to launch your business.

I'd suggest that you look into either joining a VC and spending a few years learning the ropes, or if you have money to invest, you can join an angel group and invest with them. Either way, you'll get good exposure to the economics of running a venture business.